Philip Morris International - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered record net revenues ($10.14B), double‑digit adjusted operating income growth (+16.1% reported; +14.9% organic), and adjusted diluted EPS of $1.91; EPS beat consensus ($1.86*) while revenue slightly missed ($10.33B*).
• Smoke‑free momentum reaccelerated: IQOS HTU adjusted IMS +11.4%; ZYN U.S. offtake +26% in Q2 and +36% in June; smoke‑free reached 41% of net revenues and >42% of gross profit.
• Full‑year guidance raised: FY25 adjusted diluted EPS to $7.43–$7.56 (ex‑FX $7.33–$7.46); organic OI growth to 11%–12.5%; OCF to ~$11.5B; CapEx to ~$1.6B; Q3 adjusted EPS guided to $2.08–$2.13.
• Catalysts: guidance raise, ZYN reacceleration with normalized supply, continued IQOS share gains in Europe/Japan, and expected IQOS ILUMA U.S. PMTA (timing subject to FDA workload).

What Went Well and What Went Wrong

What Went Well

• “Very strong results…record net revenues and exceptional growth in operating income and adjusted diluted EPS,” per CEO Jacek Olczak.
• Steep smoke‑free acceleration: IQOS adjusted IMS +11.4%; ZYN U.S. offtake +26% for Q2 and +36% in June; VEEV shipments more than doubled, with #1 closed‑pod position in 6 European markets.
• Margin expansion: adjusted OI margin rose 330 bps YoY to 41.9%; Europe margin +430 bps to 47.2% and EA/AU & GTR +490 bps to 49.9%.

What Went Wrong

• Revenue miss vs consensus and softer combustibles volumes: cigarettes down 1.5% driven by Turkey and Indonesia; unfavorable mix weighed on topline.
• Turkey supply chain/regulatory changes and Indonesia illicit trade pressured combustibles; management expects cigarette shipments down ~2% for 2025 (H2 ‑3% to ‑4%).
• Operating cash flow down YoY in Q2 ($3.41B vs $4.63B in Q2’24) due to German duties and final U.S. Tax Cuts & Jobs Act payment (cumulatively >$1B).

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Philip Morris International 2025 second quarter results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one-one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, James Bushnell, Vice President, Investor Relations. Please go ahead.

James Bushnell (VP of Investor Relations)

Welcome and good morning. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2025 second quarter results. The press release is available on our website at pmi.com. A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations, and reconciliations to the most directly comparable U.S. GAAP measures for non-GAAP financial measures cited in this presentation, are available in Exhibit 99.2 to the company's Form 8K dated today and on our Investor Relations website. Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. I'm joined today by Emmanuel Babeau, Chief Financial Officer. Over to you, Emmanuel.

Emmanuel Babeau (CFO)

Thank you, James, and welcome, everyone. We delivered an excellent set of H1 results following another very strong performance in the second quarter of 2025. Top-line dynamism from our smoke-free portfolio, which reached a record $4 billion in net revenues, coupled with margin improvements across our business, drove strong double-digit adjusted diluted earnings per share growth in both constant currency and dollar terms. The multi-category momentum of our smoke-free business accelerated with a Q2 step-up in off-take growth for IQOS, Zyn, and Veev. As expected, IQOS delivered another strong performance with heated tobacco unit adjusted in-market sales growth accelerating to +11.4% in Q2. This reflects broad-based growth both globally and in Europe, as markets such as Italy passed the transitory disruption of the characterizing flavor ban.

Zyn confirmed its upward trajectory with a significant acceleration in US consumer off-take growth to +26% for Q2 and +36% in June, as in-store availability improved. Internationally, Q2 nicotine pouch volumes increased +65% and almost tripled outside the Nordics. In e-vapor, Veev continued its remarkable trajectory with shipments more than doubling year-on-year, driving further gross margin expansion. For combustibles, despite unexpected return to modest volume declines, our business delivered robust top and bottom-line performance, reflecting its resilient model led by strong pricing. We continue to generate best-in-class growth across the P&L with high single-digit organic H1 top-line growth and mid-teens adjusted OI growth to reach a margin of over 41%. This high-quality performance reflects the increasing profitability of our three smoke-free categories at scale, operating leverage, and efficiencies combined. These results provide an excellent platform for another year of superior growth.

We expect strong smoke-free momentum to continue in H2, while we factor in the exceptional H2 prior year comparison, notably on growing combustible volumes and certain timing factors. With strong business fundamentals and a slightly more favorable expected tax rate, we are raising our adjusted diluted EPS full-year forecast to +13%- +15% growth, or +11.5%-+13.5% excluding currency. Looking at our Q2 financials, we delivered another quarter of shipment volume growth of +1.2% and organic top-line growth of +6.8% or +7.1% in dollar terms to reach over $10 billion in quarterly net revenues for the first time. Excluding the Indonesia technical impact explained last quarter, organic net revenues grew by more than +8%. Adjusted OI grew by +14.9% organically, with growing profitability in all categories, positive smoke-free margin mix, and ongoing cost efficiencies.

Adjusted diluted EPS of $1.91 reflects growth of +20%, including favorable currency variance of $0.02, $0.04 lower than previously guided, mainly due to intercompany transactional impact from currency volatility at payer end, including on the Swiss franc. This better-than-expected EPS delivery notably reflects strong top-line momentum, positive margin evolution in our smoke-free product business, and robust combustible pricing. Combining this excellent Q2 with a strong first quarter, we achieved one of our strongest-ever H1 performances. Total shipment volumes grew by +2.5%, and organic net revenues by +8.4%, or approximately +10% excluding the Indonesia technical impact. Strong performance from both smoke-free and combustibles drove adjusted operating income growth of circa +15% in both organic and USD terms to reach $8 billion in total. H1 adjusted diluted EPS was up by +17.7% in constant currency and by +16.1% in dollar terms.

Turning to shipment volumes, we delivered Q2 growth of +1.2% and +2.5% for the first half, driven by more than +13% growth from our smoke-free business. While adjusted in-market sales growth accelerated, Q2 HTU shipment volume grew +9.2%-38.8 billion units, including robust growth in Europe and Japan, as well as promising growth from global markets such as Indonesia, South Korea, and global travel retail. H1 HTU shipments increased by +10.5%, broadly in line with adjusted in-market sales growth. As mentioned last quarter, our H1 shipments include a Q1 shipment timing benefit of around 1 billion units, which we expect to reverse in the fourth quarter. Oral and e-vapor shipments again grew significantly. Cigarette volumes declined modestly in Q2 following the exceptional growth of recent quarters.

This was primarily due to contraction in Indonesia and in Turkey, where we experienced supply chain issues following a change in regulatory requirement. This resulted in a temporary loss of volume and share, with some associated inventory write-downs. We expect a gradual recovery through the remainder of the year, though H2 year-on-year comparisons are still likely to be affected. In Indonesia, despite a good share performance, a growing illicit segment is impacting both the legal industry and our volumes within it, and this is also likely to extend into H2. We expect our cigarette volumes to decline around 2% for the year, more in line with the historic underlying trend. This includes a forecast decline of 3%-4% in H2 against the high prior year comparison I mentioned, with Turkey accounting for close to half of this decline.

This also factors the continuation of decline in Europe and Japan, as smoke-free products grow strongly, and the dynamic in Indonesia and in Egypt, where the recovery of the main local competitor is ongoing after previous supply constraints. As a testament to the resilience of our combustible model, we are still targeting combustible gross profit growth in H2, supported by pricing and cost efficiencies. For smoke-free products, we anticipate continued double-digit volume growth in H2, including the expected reversal of H1 phasing benefits on IQOS. However, given cigarette dynamic, it is possible that H2 may see modest declines for total Philip Morris International volumes. Importantly, with the forecast full-year increase of around +1%, we continue to target our fifth consecutive year of total volume growth, as we do for future years, as our smoke-free portfolio continues to drive performance.

Breaking the performance down by category, exceptional gross margin and OI growth in Q2 resulted in impressive first-half results powered by our increasingly profitable smoke-free business. H1 smoke-free net revenue grew organically by +17.3% to $8.1 billion and gross profit by +27% to $5.6 billion, with +530 basis points of organic expansion to reach over 70% gross margin. This is around 4.5 percentage points above the gross margin of combustible at the current category and geographic mix. As in 2024, this reflects continued margin expansion for all three smoke-free categories, notably combined with the positive mix impact of Zyn's accretive unit economics and pricing on both HTUs and Zyn.

Very strong IQOS gross margin expansion reflects the powerful growth and scale effect of this large and growing business, manufacturing productivities, and a comparison benefit from higher device shipment in the prior year when ILUMA Eye was launched in Japan and other markets. We expect strong margin to continue in H2, albeit without the device year-on-year comparison benefit, as we also further expand the presence of Iluma Eye across markets and Bonds in Indonesia. Combustible net revenues increased by +2.9% or more than 5%, excluding the Indonesia technical impact. Gross profit grew by +5%, driving +140 basis points of margin expansion, despite the financial impact of the Turkey disruption. This includes a robust Q2 with organic net revenue growth of +2% and gross profit growth of +4.8%.

This performance epitomizes the resilience of our ongoing combustible business model, with low single-digit volume declines, robust pricing, and efficiencies combining to deliver top-line and gross profit growth over time. We continue to target combustible gross margin expansion organically and in dollar terms for the year, despite slower pricing and weaker volume in H2. The combination of sustained smoke-free momentum and combustible resilience led to +15.4% H1 organic OI growth at total Philip Morris International level, resulting in +250 basis points of operating income margin expansion to surpass 41%. H1 net revenue growth of +8.4% was again fueled by the three engines of our top-line growth model, with positive volumes, robust pricing, and favorable smoke-free mix. Pricing contributed +5.2 points, driven by combustible pricing of +7.7% and low single-digit smoke-free pricing, excluding devices.

The positive mix impact of rapid SFP growth drove a further contribution of +3.1 points. Combustible geographic mix and other factors had an unfavorable impact of 2.4 points, including the Indonesia technical impact of around 1.5 points. Currency had a negative impact of 1.5 points, with a further 0.4 points from acquisition and divestitures, which include the divestment of Vectura. Turning now to gross margins, we delivered H1 organic expansion of +300 basis points and +320 basis points, including currency acquisition and divestitures. Pricing made a +160 basis point contribution, more than offsetting the 60 basis point unfavorable impact from cost inflation, net of productivity, and other cost items. Smoke-free growth drove an excellent +190 basis points, reflecting the factors I covered earlier. The impact of combustible was broadly flat, excluding pricing, but including the Indonesia impact.

Below gross profit, we continue to invest strongly in the future growth of our smoke-free brands, including in the US, with SG&A organic growth of +10.6% for H1, marginally above net revenue growth, excluding the technical impact of Indonesia. We achieved more than $500 million in gross cost saving year-to-date through our manufacturing and back-office efficiency initiatives. Now, at the midpoint of our target 2024-2026 period, we have delivered over $1.2 billion, placing us well on track towards our $2 billion objective. Altogether, with gross margin expansion more than compensating for higher year-on-year commercial investments, we delivered +290 basis points of adjusted operating income margin expansion in H1, or +250 basis points organically. Q2 organic OI margin expansion of +300 basis points was even stronger than the +200 basis points in our first quarter.

Focusing now on our smoke-free business, where our multi-category strategy is facilitating the continuous growth of our smoke-free user base. Estimated legal age consumer of our SFPs grew by approximately 5 million versus one year ago, reaching around 41.5 million as of June 30. Our smoke-free products are now available in 97 markets, following the Q2 launch of Zyn in Ireland and Cambodia. Almost half of these markets now have a multi-category offer with at least two of IQOS, Zyn, and Veev on sale to legal age nicotine users. As shown on this slide, we now have all three categories deployed in 20 markets as we continue to broaden our multi-category presence.

The regulatory environment is a key enabler of smoke-free growth, and I'm pleased to report some more examples of positive progress, such as legislation providing new market access for one or more SFP categories across several Middle East markets. We also note the recently published proposal to revise the EU Tobacco Excise Directive, which marks the start of a formal legislative process that will require unanimous approval by all member states and subsequent transposition into national law. Many member states have already adopted risk-proportionate regulation and taxation frameworks for smoke-free products, which can serve as a valuable foundation and benchmark for shaping the final directive.

While we note the clear differentiation for smoke-free products relative to combustible in the proposed minimum rates, we are also disappointed to observe the lack of a plan to counter the threat of illicit trade, which accounted for 9.2% of total EU cigarette consumption in 2024, with governments losing over EUR 14 billion in tax revenue at a time when many countries face intense economic pressure. Our multi-category approach is built on the strengths of the brand and commercial presence of IQOS, which remains our core smoke-free product growth engine. We continue to be laser-focused on maximizing the growth of IQOS over time, with the deployment of Zyn and Veev under its umbrella, offering complementary opportunities to fully transition legal age nicotine users from cigarettes to SFPs.

In this context, I'm especially pleased to confirm the acceleration in IQOS HTU adjusted in-market sales growth to +11.4% in Q2, notably driven by Europe and including excellent progress in its largest market of Italy, as the impact of the characterizing flavor ban recedes and our commercial initiatives bear fruit. Japan also delivered another robust quarter of growth, and other global markets accelerated nicely. While competitive activity is increasing, we see this as positive for category growth over time, and we expect continued strong IQOS progress in H2. We continue to target +10% to +12% HTU adjusted IMS growth for the year. Continuous IQOS innovation on devices and consumables, combined with investment in brand equity, are fundamental pillars of our growth. The rollout of the ILUMA Eye technology, now present in over 30 markets, remains ongoing.

We are expanding the portfolio of Livia tobacco-free consumables, with promising initial results from recently launched new test variants and flavor capsules. We also comment on the rollout of a revamped design on our core premium Terrea HTUs, as well as the expansion of our mainstream price offering Delia, with excellent results in markets such as Germany and Poland. In the U.S., we continue with small-scale IQOS free pilots, which are generating considerable adult consumer interest. As we progress our commercial pilot in Austin, we also launch a second pilot in Fort Lauderdale during the quarter, with further initiatives planned in the coming months as we prepare for the at-scale launch of IQOS ILUMA once authorized by the FDA.

Our second flagship premium smoke-free brand, Zyn, leads a category which has the potential to fundamentally reshape the consumption of nicotine for the substantial net benefit of global public health as adult smokers increasingly switch to smoke-free products. Q2 can shipments grew by +43% on a global basis, and off-tech reaccelerated strongly in the U.S., which I'll come back to in more detail. Building on Zyn's U.S. strengths, our global rollout continued to advance, with Q2 international can volume up +65% year-on-year, or a remarkable +179%, excluding the Nordics. The growth of our international business reflects both market expansion and strong off-tech growth, supported by expanding production capacity in new geographies. Notable strong performances include our global travel retail business, with close to +200% volume, excluding the U.S., as well as the U.K., Pakistan, Poland, South Africa, and Mexico.

As covered in our recent Europe Focus event, our focus is on growing the category by switching legal age smokers rather than sourcing from the small existing category. It is also notable that Zyn holds the number one position in Mexico and South Africa, where we launch our predominantly mini dry portfolio at the same time as competitor brands. Dry pouches already make up the majority of our pouch volumes in more than three-quarters of Zyn's market, and we believe this format is especially relevant for legal age smokers. Zyn is now present in 44 markets globally, following additional launches in Q2. Our smoke-free trilogy is completed by Veev. H1 shipment volumes more than doubled to reach almost 1.5 billion equivalent units, with increasingly profitable growth driven by Europe, where Veev now holds the number one close-port position in six markets, including Italy and Greece.

Outside Europe, we see significant potential for the brand, with nice results in diverse markets such as Indonesia, Canada, and Colombia, and further rollout planned. Increasing repeat purchase rates and consumer loyalty are especially promising as we seek to leverage our multi-category infrastructure under the IQOS umbrella of quality, pre-miumness, and superior technology. In this vein, we recently launched our latest innovation, Veev In Prime, in the Czech Republic. In Prime offers an upgraded premium user experience with higher intensity of flavors, a larger cloud size, and higher battery capacity with an optimized podcast profile. The most developed multi-category consumer landscape is in Europe, and we now have 30 markets with at least two categories on offer.

Of course, IQOS remains the core driver of our performance in the region, and I'm delighted to report a meaningful Q2 acceleration of HTU adjusted in-market sales growth to +9.1%, as adjusted market share grew by +1.2 percentage points year-on-year to 10.9% in this seasonally higher period for combustibles. As explained at our recent Europe event, IQOS has a very strong brand platform across the region, and this performance reflects our innovation and commercial initiatives, including those on ILUMA Eye, Livia, and Delia. This helped drive strong double-digit adjusted IMS growth across markets, including Germany, Spain, Romania, Greece, and Bulgaria. A significant Q2 callout is Italy, Europe's largest IQOS market by volume, which delivered a very welcome uptick in both sequential and year-on-year growth.

With the exception of Poland, Austria, Estonia, and Croatia, the impact of the EU characterizing flavor ban is now behind us, and our absolute regional growth in HTU adjusted IMS is now getting closer to pre-ban levels. While quarterly comparisons from 2024 have some volatility from flavor ban dynamics, sequential trends are very positive, and we look forward to the remainder of the year with confidence in further strong IQOS growth. On top of this IQOS progression, the accretion from our multi-category strategy is evident in our total volume of IQOS, Zyn, and Veev, with shipment growth of +13.5% in Q2 compared to HTUs alone at +10.5%. Zyn and Veev are still very early in their development but are demonstrating exceptional growth.

The numbers you see here are for Europe overall, and I would also note that where we are present with all three brands such as Italy, Greece, Poland, and Romania, we see several points higher SFP volume growth. In Japan, we achieved a significant milestone of 10 million estimated users, and Q2 adjusted HTU shares increased +2.3 percentage points year-on-year to 31.7%, despite increased competitive intensity. IQOS continues to deliver strong progress, with Q2 adjusted IMS growth of +7.8% against a prior year period which included the full launch of ILUMA Eye. As shown on the slide, IQOS delivered truly exceptional growth in 2023 and 2024, especially considering the size of the category now stands at almost half of total nicotine off-take volume nationally and more than half in certain cities.

The high single-digit growth that our business delivered in H1 2025 remains very healthy and is essentially in line with the trend in the years prior. We expect further strong adjusted IMS growth in the remainder of the year. We are pleased to see our competitors embrace the Heat Not Burn category, as while our category share was sequentially stable at around 70% in Q2, our biggest focus is on accelerating the size of smoke-free products overall to maximize the growth of our leading proposition and convert more smokers. Switching now to the U.S., the strong reacceleration in Zyn off-take growth is a clear highlight of our Q2 performance and testament to the strengths of the brand as in-store availability improves and legal age consumers regain access to the full Zyn portfolio offering.

The supply constraint of previous quarters had limited the growth in sellout volumes and meant Zyn was growing less than the overall category. With manufacturing capacity now in very good shape, the recovery to around +36% off-take volume growth in June, as measured by Nielsen, and +26% in Q2 overall, marked the return of Zyn to its category-driving position in terms of growth and market share. On a sequential basis, Zyn off-take volume accelerated to around +12% growth versus Q1, in line with the total category. With the number of commercial programs restarting at the end of the quarter, this is clearly very promising as we increasingly focus on legal age smokers and vapers who have not yet switched to the category. Q2 shipments increased +41% year-on-year, reaching 190 million cans. As with any out-of-stock situation, quarterly shipments are subject to volatility.

Restocking of the value chain was effectively completed in H1, with the majority of this taking place in the first quarter. We estimate the total net impact at broadly 40 million cans for the year, slightly below our initial expectation. This factors in the good news that retail availability is now approaching normalized levels, with a lower scarcity premium in retail prices narrowing the price gap to competition. Importantly, sales velocity is accelerating, and with 36% off-take growth in June, this bodes well for the second half of the year. With shipments now primarily driven by consumer off-take, we expect a broadly similar level of shipment in Q3 as in Q2, factoring in the possibility of a few days' adjustment to wholesaler and distributor inventory as the situation fully normalizes. We continue to target full-year U.S. shipment of 800-840 million cans, including a sequential step-up in Q4.

With our U.S. production capacity increase ahead of plan, and now well set for this year and beyond, we are incredibly excited to drive Zyn and the overall nicotine pouch category to its full potential over the coming years. Having covered Europe, Japan, and the U.S. in some detail, let's look at the rest of the world. In most markets, both the nicotine pouch category and our multi-category presence are nascent. Both Zyn and Veev will leverage on the strengths of IQOS, where Q2 adjusted in-market sales accelerated to +19.3% growth, with broad-based progress including Egypt, the Philippines, and Indonesia. While pouch and e-vapor volumes are naturally very small across this market at this stage, we can measure their Q2 growth in multiples rather than percentages. This impressive IQOS growth is exemplified by off-take share gains in global key cities.

Strong presence in South Korea and Malaysia is more than matched by key cities in Mexico, Serbia, the Middle East, and North Africa. Global travel retail, where multi-category is increasingly prominent, also continues to grow strongly. The world's largest cigarette market by volume outside China is Indonesia, where Jakarta's off-take share grew by +2.5 percentage points year-on-year to 7.5%. Following promising results from the pilot launch of our full-flavor Heat Not Burn technology, Bonds, which is tailored to local CRETEC test preferences, we have recently commenced a broader rollout. Bonds is also progressing well in Lebanon. Turning to combustibles, our business delivered robust organic net revenue growth of 2% in Q2 and +2.9% for H1, with Marlboro reaching a post-peak category share high of 10.7% in Q2. Strong Q2 pricing of +7.2% included a notable contribution from Indonesia, Germany, and Italy, yielding +7.7% in H1 overall.

While we continue to expect moderation in H2 pricing due to timing and comparison dynamics, we now forecast +6% to +7% for the full year. Our strategy is to take pricing action to optimize the financial contribution to the business over time, which can naturally impact volume and share performance on a quarterly basis. Our combustible business is resilient, and the combination of pricing, category leadership, and ongoing efficiencies drove very good gross profit growth, as covered earlier. This performance is in line with our objective of maximizing value over time and supporting the growth of our smoke-free business. This brings me to our revised outlook for a remarkable 2025, where we are raising our adjusted diluted EPS forecast for the year in both currency-neutral and dollar terms. As expected, we delivered a strong H1 organic performance compared to our target ranges for the full year.

While combustible volume dynamics and the phasing of comparison and cost are less favorable in H2, our fundamental outlook remains very good. We expect continued strong momentum on both IQOS and Zyn, alongside robust pricing and meaningful margin improvement. We expect further double-digit HTU adjusted IMS progression, with growth skewed to the fourth quarter, given a strong comparison in Q3. We forecast Q3 HTU shipment of 38.5-39.5 billion and dynamic growth in adjusted diluted EPS to $2.08-$2.13, including strong investment and a favorable currency variance of $0.05 at prevailing rates. For the full year, we continue to expect very strong organic net revenue growth in the range of +6% to +8%. Following excellent H1 top-line dynamism and margin progression, we are raising our forecast range for organic operating income growth to +11% to +12.5%.

We are also raising our currency-neutral adjusted diluted EPS growth to +11.5%-13.5%. This includes a slightly improved effective corporate tax rate of approximately 22%-23%, based on the latest assessment of tax dynamic and market mix. We are still reviewing the implication of the OBBB Act U.S. tax reform. In dollar terms, we expect adjusted diluted EPS growth of +13%-15%. This includes an estimated $0.10 favorable currency impact at prevailing exchange rate, with favorable earnings translation from a broadly weaker dollar, partly offset by transactional impact due to currency volatility, which I covered earlier. Given our expectation for a strong full-year profit delivery and cash conversion, we are raising our forecast for operating cash flow to around $11.5 billion at prevailing exchange rate and subject to year-end working capital requirements.

We project capital expenditure slightly above our prior forecast at around $1.6 billion, primarily due to further international Zyn capacity investment, with CapEx spend almost entirely focused on supporting the growth of smoke-free. With regard to our balance sheet, we continue to target further deleveraging in 2025, placing us on track for our target ratio of around two times by the end of 2026. As mentioned last quarter, we are a global company with broadly diversified production and a worldwide supplier network, including an established US manufacturing base, and we believe we are well positioned to mitigate potential supply chain challenges. While the situation is volatile, we do not currently anticipate a material impact on our business from recently introduced or discussed tariffs. Our financial growth model is driving a continuous improvement in the quality of our business, with smoke-free accretion and combustible resilience driving considerable bottom-line growth.

We are well on track to meet or exceed our three-year CAGR targets, demonstrating our ability to deliver what we believe to be best-in-class CPG growth. Adjusted diluted EPS growth in dollar terms is a key objective, and we are pleased to see this delivered in H1 as well as in our outlook for the year. I will now conclude today's presentation with some closing remarks. We delivered an exceptional first half of the year, placing us well on track for another year of strong performance. Our smoke-free growth is increasingly profitable as IQOS, Zyn, and Veev gain scale and drive synergies at the consumer and commercial level. Our best-in-class financial performance is bolstered by underlying strengths across all categories, including the resilience of our combustible business, in addition to our proactive measures on pricing and cost efficiencies.

This drives our confidence in strong and sustainable adjusted diluted EPS growth in both currency-neutral and dollar terms. Finally, we remain a highly cash-generative business with an unwavering commitment to our progressive dividend policy. We look forward to further rewarding our shareholders as our transformation delivers continued growth. Thank you, and we are now very happy to answer your questions.

Operator (participant)

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Gaurav Jain with Barclays. Your line is open.

Gaurav Jain (Analyst)

Good morning, Emmanuel.

Emmanuel Babeau (CFO)

Morning, Gaurav .

Gaurav Jain (Analyst)

Thank you for taking my question. One is on Zyn. You are saying that restock was less than what you had expected.

How should one read it? That your expectations for future growth, they were higher earlier, and now they are lower. Not only yours, but the market expectations were higher, and now they are lower. That is why the need for restock is lower. In that context, if I look at your Zyn volume guide, if I say 3Q is flat versus 2Q, then in 4Q, you need to do 219-259 million cans for that 800-840 guide range, which would imply almost 15%-36% growth on a QOQ basis. I remember from covering Swedish Match a few years ago that Q4 actually used to have fewer shipping days for them, so they did not really use to grow Q4 over Q3. Can you just help me understand all the moving parts from Zyn?

Emmanuel Babeau (CFO)

Sure, Gaurav , with great pleasure.

First of all, on the impact of the restocking, let's be a bit humble here. We talk about a brand that we're targeting to deliver for the year 800-840 million can. There are several weeks of inventory between wholesaler, distributor, and the retailers. I'm not able to tell you a precise number. It's probably anywhere between six to seven weeks altogether. Here, we are talking when we say it's a bit lower. I mean, it's clear that, for instance, at the retailer level, we had no precise idea of the level of inventory. We are a bit below our expectation. If I was to give a number, it's probably maybe 10-20 million can below. Frankly, I'm not able to be more specific than that. We are talking about a few days of sale, so it's really small.

That is really what we're talking about. Again, we've been facing this significant out-of-stock situation. We had the exercise of reloading. The good news is that it's behind us. We made a few assumptions on what it would mean in terms of restocking. Okay, we've been probably a bit higher versus what was really needed, but this is it. I do not think there is anything else to be read there. At the end of the day, I think we should focus on what is really important, which is the great dynamism that Zyn is facing now that there is full availability. Indeed, June was growing 36% in terms of consumer off-take, according to Nielsen. If I look at the first two weeks of July, we are north of 37%. I think the market is a bit above 39%.

Basically, we are growing now in line with the market. It just shows that we have absolutely resumed a strong momentum and that, of course, bodes very well for the future. At the same time, as I mentioned, we are really restarting promotional advertising commercial activity in a 360-degree manner, I would say. That is really what I think is important on the sequence. In my remark, I noted the fact that there may be some adjustment as people have been maybe buying Zyn in a kind of mindset of shortages, and we think there could be some adjustment on the volume here and there in Q3. That can impact the Q3 performance. We say there is a step up in Q4. At the end of the day, we are now in a dynamic where we are quarter on quarter growing nicely.

I think the growth in the second quarter, 12% versus Q1, was by far the biggest sequential growth quarter on quarter since the first quarter of 2024. We are absolutely back to renewed dynamism, and we are growing fast year on year, and that's what is driving our expectation for volume growth in the next months.

Gaurav Jain (Analyst)

Sure. My second question is just on EU TED, like you referenced a few comments, but could you help us understand in more detail what exactly are the proposals in terms of different tax rates on NGP products? If there is any update on EU TPD as well.

Emmanuel Babeau (CFO)

Gaurav , I'm not going to elaborate on the initial proposal. We are at the beginning of a long process. Last time it was 2010, 2011, it took two years, I think, from the beginning to the end.

A lot of discussion will happen. I reminded everybody that it requires unanimity from the parties. I'm not going to comment on things until there is more clarity on what's going to happen. The process has started. There will be several steps. As I said last time, it took almost two years. Of course, when we have more clarity on what is really likely to happen, at that moment, we'll comment the implication. In my remarks, I noted the two points which are important for us for the time being. One is the fact that the initial proposal is indeed coming with differentiation between smoke-free and combustible when it comes to minimum taxation. That's an important element.

The second, that as an element which we hope will be improved, obviously, that there is nothing when it comes to illicit, which is, I think, a real question for the European Union to tackle. That is what we can say for the time being.

Gaurav Jain (Analyst)

Thank you so much.

Emmanuel Babeau (CFO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Eric Serrato with Morgan Stanley. Your line is open.

Eric Serrato (Analyst)

Great. Thanks, Emmanuel. Good morning, Eric. Good morning. A couple of questions. First, in terms of IQOS, ILUMA, U.S. approval timing, I think you mentioned launch once authorized by the FDA. Are you guys still sticking to your expectation of a second-half authorization, realizing it is not something you have control over?

Then second, when you look at international IQOS, can you talk a bit about some of the drivers of the reacceleration in IMS and sort of the sustainability for the second half of the year? Thank you.

Emmanuel Babeau (CFO)

Sure, Eric. First, on the U.S., I mean, we do not have anything new to report on the potential PMTA for IQOS ILUMA. I think everybody can see that FDA is resuming activity on PMTA, and that is good news. As far as we are concerned, and this is public information, there is now, for the renewal of the MRTP on IQOS 3, a Tobacco Product Scientific Advisory Committee that has been scheduled. They have also opened a docket for Zyn MRTP. A number of things are happening, and that is what we know for the time being.

I have nothing new to report on the PMTA for IQOS ILUMA. We are still hoping for an approval in H2, but we are also, at the same time, acknowledging the fact that the agenda and the workload for the FDA is very heavy. Therefore, it is clear that we do not have a certainty that we will get this PMTA in 2025, and that could move, of course, to 2026. On the second question on the reason for the acceleration of IQOS, I mentioned, I think, many of them. I think it is really Europe where you have now the effect of the characterizing flavor ban that are waning and a number of markets reaccelerating. Some markets are doing really very strong performance. I mentioned some of them, like Spain, Germany, Romania, Bulgaria. It is great to see Italy reaccelerating as well. I would say momentum is rebuilding.

Now, there will be some phasing last year on the performance in Europe, but I think we are expecting a nice performance overall for H2. Outside Europe, we expect continued very nice performance from Japan and have been elaborating on the trend there where we continue to do very well. There are all these new growth markets that are super exciting. Of course, global travel retail is one of them, but Indonesia, many countries in the Gulf region, Mexico, Philippines. I mean, these are plenty of markets where we see very nice growth trajectory and growth potential for IQOS. In this new growth market, the momentum, I would say, is progressively building up.

Eric Serrato (Analyst)

Great. Just one follow-up on combustibles. Your volume's down 1.5%, or I should say only 1.5%, despite the headwinds you called out in Turkey and Indonesia.

Was that actually a little bit better than you expected since you guys have been pretty upfront, really, since last year that you expect combustibles volumes to resume their declines in 2025?

Emmanuel Babeau (CFO)

You are right. Globally today, when we say that for the year, we are targeting to be around -2% in terms of shipment, that is something that I had the opportunity to say in previous instances very clearly. The fact that we believe we are going to be back to what we think is a long-term trend for the combustible business, which is a low single-digit decrease. I am not able to specifically say exactly which kind of low single digit, but that is a trend for sure that we expect in the future.

Yes, of course, countries where there is a ban on smoke-free can have some impact on this low single-digit decline, but nevertheless, that is the trend. That is what we have seen in Q2, largely in line with our expectation. That is what we expect for H2 with this impact of Turkey. That is a kind of transitional thing that is going to impact H2 more specifically. Otherwise, I think we are progressively going back to what we describe as a normal long-term trend for combustible.

Eric Serrato (Analyst)

Great. Thanks so much, Emmanuel. I'll pass it on.

Emmanuel Babeau (CFO)

Thank you. Thank you.

Operator (participant)

Thank you. Our next question comes from Matt Smith with Stifel. Your line is open.

Matt Smith (Managing Director)

Hi, Emmanuel. I wanted to ask about the increase in the underlying guidance. The constant currency range is up about a point from the previous midpoint.

That reflects the stronger second quarter and some favorability on the tax rate. Is it fair to say the second half is more or less in line with your previous expectations? Can you provide a little more detail on the considerations in the second half? You called out phasing and comparisons and costs and the impact on margins from those and the timing of those when they become lapped into the base?

Emmanuel Babeau (CFO)

Yeah. I think when you look at, there are, of course, a number of elements that can distort the vision quarter on quarter, H2 versus H1. What we wanted to ensure that everybody understands is that, in fact, the momentum in Q2 on smoke-free is, in fact, even better than in Q1. Q1 was already very good. In fact, in Q2, we've seen an acceleration of the IQOS in market sales.

We are back to nice double-digit growth, very nice and very powerful reacceleration of Zyn in the US. Of course, elsewhere, Zyn and Veev are growing very fast. Q2, in fact, is a very nice acceleration on our smoke-free business, and this is absolutely visible in our numbers. When we look at H2, in fact, we expect the continuation of this very strong momentum that we have seen in H2 on smoke-free. We expect IQOS to continue to grow double-digit in terms of adjusted IMS. We expect now that we have availability, which is no longer an issue for Zyn in the U.S. We expect the continuation of this very strong acceleration of Zyn in the U.S. Again, I reported the 37% growth for the first two weeks of July. H2 is starting on a good note for Zyn in the U.S.

This momentum is unchanged, and we expect it to remain very strong. Certainly, what is going to be less favorable is the trend on combustible. We were almost flat, -0.3% in volume in H1, and we expect a 3-4% decline. I've been explaining the driver for that. Despite that, we expect a gross on-gross profit for combustible, but nevertheless, at a lower level, of course, than in H1. This is one of the reasons for the differentiated performance in H2 versus H1 for what we can expect. You have a number of phasing elements on smoke-free, which have nothing to do with performance, but which are due to basis of comparison or a number of one-off events. If I look at IQOS, there was this 1 billion stick shipment in Q1 that we're going to compensate in Q4.

Of course, that is favoring H1 and penalizing H2. We had super favorable comps in H1 because of accelerated sales of devices last year that have been growing profit and margin. We're not going to have that in the second part of the year. That's another element. You have the Zyn restocking that has been benefiting H1 and, of course, will not be benefiting H2. I think that's really what is behind the guidance. I think if you take all the elements I've just been sharing, you have the right understanding of the dynamic. I hope this is helpful.

Matt Smith (Managing Director)

Very helpful. As a follow-up, pricing for heated tobacco units was up, I think, low single digits again in the quarter. You're about a year into realizing a nice contribution from pricing in that business.

In the markets where you are taking pricing, how is that impacting volume and new user acquisition relative to your expectations? Has that changed the way you think about the pricing potential in the HTU business over time? Thank you. I'll leave it there.

Emmanuel Babeau (CFO)

Yeah. Sure, Matt. I think we're really trying to make sure we do not penalize volume with price increase when it comes to IQOS and Zyn because we describe how positive the volume growth is because we have higher revenue per unit. We have higher margins. The name of the game is, of course, to absolutely optimize the volume. There is, obviously, as we are growing the franchise of the brand, the strength of the brand, there is a pursuit to increase price without impacting the volume.

I think that is the right balance we're looking for, which is we increase volume, but we certainly don't want to change trajectory on volume because of that. Price, yes, but provided it does not impact in a meaningful manner the volume trajectory. That is the strategy, and that is what we will continue to do.

Operator (participant)

Thank you. Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

Bonnie Herzog (Managing Director)

Thank you. Hi, Emmanuel.

Emmanuel Babeau (CFO)

Morning, Bonnie.

Bonnie Herzog (Managing Director)

Hi. I had a few follow-up questions on Zyn. Based on everything you discussed and what you're seeing in the market, should we assume the lower end of your full-year shipment guidance range is more realistic? I guess I'm trying to understand if the high end is even possible in your mind.

Emmanuel Babeau (CFO)

Can you update us on your capacity and where it stands today and when it will increase? Sure. Of course, we give this bracket because we believe that we can finish the year within the bracket. At every point of the bracket, we give the 800-840 million. Clearly, the fact that this 10-20 million lower restocking than what maybe we thought, I mean, that is having an impact. At the end of the day, you can see that the restart of IQOS can be very powerful. I mean, 36%, 37%, we are restarting commercial activity, advertising. We do not know what is going to be the growth profile for H2. That is why we are still comfortable with the 800-840 million bracket.

On the capacity, we can say that today we have been building a comfortable capacity to face all kinds of very dynamic growth scenarios for the future. Therefore, we are comfortable for the coming quarters.

Bonnie Herzog (Managing Director)

Okay. Maybe just another follow-up because you just touched on something that I also wanted to ask, which is now that you're, I guess, essentially back in stock or you can ship to demand, how does that change your strategy for Zyn as it relates to your pricing, promotions? Are you going to, I guess, get a little bit more aggressive in an attempt to possibly grow Zyn faster and take more market share? Just how are you thinking about that? Thanks.

Emmanuel Babeau (CFO)

Yes. Yes, of course, Bonnie. You're right.

As I said, we go for putting all levers to maximize the growth of Zyn and all that in a very different environment because now we have full availability. During many months, many quarters, we've been refraining ourselves from acquiring new users because we knew that we were not really able to supply the need for new users. That meant limited activity, I would say, across the board. In terms of pricing, in terms of marketing activities. We're going to restart normal activity, and that will certainly include more promotion. We have a much lower level of promotion than any other brand, and I think it will stay like that. It does not mean that we cannot increase the level of promotion as well.

That will be certainly advertising and commercial activity on the point of sales where we need to step up now that the product is available. That will be the continuation of building the brand franchise and all this iconic element of the Zyn brand and the Find Your Zyn campaign. We are going to pull all levers to make sure that we give the best support to Zyn.

Bonnie Herzog (Managing Director)

Okay. Thank you. I'll pass it on.

Emmanuel Babeau (CFO)

Thank you.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star 11 on your telephone. Again, that's star 11 to ask a question. Our next question comes from Faham Big with UBS. Your line is open.

Faham Baig (Analyst)

Hi, Emmanuel.

Emmanuel Babeau (CFO)

Hello, Faham.

Faham Baig (Analyst)

Thank you for taking my questions. To be honest, your answers have been very thorough, so I do not have many more. I will take two.

I noticed in the second quarter, the gross margin gap between combustibles and smoke-free narrowed, and maybe smoke-free even gross margin slightly reduced Q2 on Q1. Maybe if you could expand on some of the dynamics around that and maybe what you expect for the gross margin gap over the next couple of quarters. The second question is probably simple, but if you could please remind us your FX hedge rates for the year, both Euro, Japanese yen, and any other currencies that you may hedge. Thank you.

Emmanuel Babeau (CFO)

Yes, Faham. On the gross margin evolution, you are really looking after the comma because, in fact, we are both in Q1 and Q2 around 70% gross margin rate. Of course, the mix of Zyn or the importance of the device can have an impact.

Globally, in line with what we said after Q1, we have a smoke-free business that is around—it does not mean that it can be a bit below—but around 70% gross margin. I would expect H2 not to be very materially different, okay? I am not saying it is going to be necessarily at 70, but I think we are ballparking this area where there is a very nice gross margin rate for smoke-free, higher than combustible. You noted that the gap has been narrowing a bit. It is still significant. I mean, 4.5 for the full H1. It is because CC has been improving a bit, which is price and mix of the combustible sales in the quarter.

When I look at the second part of the year, I think I would really insist on the fact that the improvement of margin on the smoke-free business was very important on H1 as we were facing easy comps because of a lot of ILUMA device sales last year as we were launching ILUMA Eye. Fundamentally, this is not the case again in H2. We do not have the same easy comps. Therefore, as I said, expect margin on smoke-free to stay high and expect, of course, the progress year on year to be reduced because we are facing higher margin last year on the smoke-free business. For combustible, I think we said that we have the ambition to increase the gross margin as well, and that is valid for H2.

I'm not going to repeat on Forex, first of all, because I have to admit I haven't been looking at exactly the latest position. I've been giving it because after, I think it was after Q1, we wanted to illustrate where we were in terms of Forex hedging. But that's not something I intend to do each time, to be clear.

Faham Baig (Analyst)

Okay. Thanks, Emmanuel.

Emmanuel Babeau (CFO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Callum Elliott with Bernstein. Your line is open.

Callum Elliott (Analyst)

Great. Thank you very much for the question, Emmanuel.

Emmanuel Babeau (CFO)

Hello Callum.

Callum Elliott (Analyst)

Hi, Emmanuel. So my first question is on Veev, if that's okay. As for a number of years, I think as a company, you guys were quite reluctant to expand too much into the e-vapor space, citing lower loyalty in that category and sort of the resultant gross margins that came from that lower loyalty.

We obviously heard a bit at your Europe event a month ago about this increasing emphasis on the three-category approach and sort of the synergies for all three categories when you sort of play in all three areas at the same time. I guess my question is, what's changed over the past year or two to drive this increasing three-category approach? In particular, I think you called out in the release the improving gross margin that you're seeing for e-vapor in particular. I wonder just anything—I doubt you're going to quantify it for me—but anything sort of qualitative you can share about what that means?

Emmanuel Babeau (CFO)

Sure, Callum. Yeah, I guess it has been explained with a great deal of details during our European day. I'm sure I'm not going to come with the same granularity.

My first comment would be to say, be assured that we know what our priorities are. Our priority is first and foremost to grow IQOS, okay? This is the leading star brand. This is the one where we see the biggest potential. This is the one where we have the best profitability. Yes, Zyn could be one day at the same level, but of course, in terms of volume, it's really small today when it comes to most of the market. That's something for the future. You should see Veev as an ailing brand to our portfolio. Yes, there is an interest in the multi-category play. I'm not going to repeat everything we presented in Europe, the fact that some consumers clearly prefer to be only in one category and one brand. Other, and sometimes there are also smokers that you want to fully exit from smoking.

They will only do that if they move to several smoke-free products. That is when we want to be able to offer several smoke-free categories. Veev is having a role to play in these circumstances. We are, of course, putting priority on Veev where we believe we can develop a profitable business. That is, of course, a very, very important condition to develop Veev. I am not going to exactly quantify the gross margin of Veev, but I can tell you that it improved by more than 10 percentage points on the beginning of 2025. Profitability is improving very rapidly. We believe that with the right loyalty, the Veev business has the possibility to have a similar profitability as the combustible business. Together, you need to have the right loyalty.

But elements that we see today on the market where we develop Veev seem to show that we can generate this level of repurchase and loyalty. It is a bit short as a summary, but these are the conditions for us to develop Veev. That is what is behind our Veev progression.

Callum Elliott (Analyst)

Just as a clarifying question, when you say similar level of profitability to cigarettes, do you mean percentage margin or unit margin?

Emmanuel Babeau (CFO)

In terms of gross margin on revenue. Gross margin.

Callum Elliott (Analyst)

Gotcha. As a percentage. Okay. Perfect.

My second question is on Zyn, sort of the intersection of Gaurav and Bonnie's two questions earlier, where obviously what you've spoken about is a sort of cadence of growth that in Q3 is something like 27% year-on-year growth, but maybe a little bit impacted by what seems to be you're suggesting some destocking, and then the full-year guide implying a reacceleration again in Q4.

I guess my question is, I wonder how the commercial activities sort of flow into that reacceleration that you're forecasting for Q4 and how confident that you are that as you lean back into those activities, as you have done in the past, right, when you took over this business from Swedish Match, that that drove an acceleration back then, that as you lean into these activities again, that you sort of stepped away from when you had the supply chain problems, that you have this ability to redrive the acceleration. How confident are you in that? And does the cadence of these activities explain that sort of cadence between Q3 and Q4?

Emmanuel Babeau (CFO)

Look, I think I've been, Callum, already giving the answer I could give. Yes, indeed, that is pointing to a very dynamic second part of the year.

Again, the level of growth in the consumer of tech in June and at the beginning of July is pointing to a direction that is broadly in line with this growth. It is at a point in time where we have not yet, as I said, fully restarted all the commercial/marketing activity. We are hopeful that this will provide further boost to the growth. I do not have much to add at that stage. I think that the data are there on the table, public, and everybody can understand the objective that we have.

Callum Elliott (Analyst)

Maybe I can just follow up then. How quickly can you turn these commercial activities back on? It seems clear that you were taken a bit by surprise with how quickly you were restocking. How quickly can you turn it back on?

Emmanuel Babeau (CFO)

It does not, of course, happen in a few weeks.

It's gradual. It's not everything at the same time. The team are very busy in the U.S. today restarting gradually everything. You're right. That is like reshitting an engine. To get to full speed on the engine, it's going to take some time. I'm not going to elaborate further, of course, as you will understand, but that's something that is going to happen gradually in the course of the third quarter.

Callum Elliott (Analyst)

All right. Thank you very much.

Emmanuel Babeau (CFO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Gerald Pascarelli with Needham & Company. Your line is open.

Gerald Pascarelli (Managing Director)

Great. Thank you very much for the question. Most of them have been answered, but I wanted to go back to currency. If you could just, can you provide some color on exactly what transpired in the quarter? You didn't get the benefit, and you had been guiding for in Q2.

That really is despite the fact that the dollar weakened further over the course of the quarter. I think the expectation was that maybe in addition to an underlying EPS raise, we would have seen an even bigger benefit to your adjusted EPS just due to a more favorable outlook on currency. Not looking for detail on your exact hedges or anything like that, but maybe just some color or thoughts on how we should think about the currency tailwind in the event that we continue to see this dollar weaken over the back half of the year. Any color there would be great. Thank you.

Emmanuel Babeau (CFO)

Sure, Gerald. In fact, what probably people are not always capturing, and I think versus the 10 cents we are coming up with, we are around 4 cents versus consensus below what the consensus was expecting.

I think it's largely the Swiss franc, both in the negative impact that it has because we have a strong exposure in terms of cost to Switzerland, as you all know, but also because the intercompany flows mean that when there is a lot of volatility and there has been a lot of surge in the Swiss franc versus other currency at the end of the period, that is generating some transactional losses. That's a significant impact. Actually, when I look at what is driving this $0.10 estimated impact at the prevailing rate, in fact, the Swiss franc is to a large extent offsetting the benefit we have on the euro, just for people to understand. It's a very significant negative impact.

Gerald Pascarelli (Managing Director)

Got it. Thank you very much.

Emmanuel Babeau (CFO)

Thank you.

Operator (participant)

Thank you. Our last question comes from Priya Ohri-Gupta with Barclays. Your line is open.

Priya Ohri-Gupta (AVP)

Hi, good morning. Thank you so much for taking the question.

Emmanuel Babeau (CFO)

Hi, Priya.

Priya Ohri-Gupta (AVP)

Emmanuel, I was just wondering if you could walk us through sort of the working capital piece on free cash flow. It looks like, based on the numbers, that might have been seasonally a bit weaker than what we normally see in the second quarter. Is that largely attributable to the IQOS dynamics or what else is going on there? Should we expect most of that to reverse as we get through the back half of the year?

Emmanuel Babeau (CFO)

Yes, Priya. Really, I think when you look at the end of H1 on the differences versus last year, I mean, indeed, the cash flow generation is lower. Most of it is the payment of duties that we made in Germany and the final payment of the job act in the US.

I think that the cumulated impact is largely north of $1 billion, and that is really the biggest impact. Otherwise, yes, we may have had, on a temporary basis, some inventory building. I mean, supply chain, of course, playing here and there. You may have some regulatory constraints. I do not think that for the year, in terms of working capital, beyond the two elements I mentioned, you should expect anything special.

Priya Ohri-Gupta (AVP)

Okay. That is helpful. Just one housekeeping item. What was your CapEx in the quarter?

Emmanuel Babeau (CFO)

I am not sure we are disclosing it by quarter. I am not going to give you the number. I think we said $1.6 billion for the year, but we do not split that by quarter.

Priya Ohri-Gupta (AVP)

Okay. Thank you so much.

Emmanuel Babeau (CFO)

Thank you.

Operator (participant)

Thank you. This concludes the question-and-answer session. Now I would like to turn it back to James Bushnell for closing remarks.

James Bushnell (VP of Investor Relations)

Thank you.

That concludes our call today. Thank you all for joining us. If you have any follow-up questions, please contact the investor relations team. Thank you again, and have a great day.

Thank you. Speak to you soon. This concludes today's conference call. Thank you for participating. You may now disconnect.